Ares Capital Corporation

Good afternoon, everyone. Welcome to Aries Capital Corporation's third quarter ended September 30th, 2025 earnings conference call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded on Tuesday, October 28th, 2025. I will now turn the call over to Mr. John Stillmar, a partner on Aries Public Markets' investor relations team. Please go ahead, sir.

Great. Thank you and good afternoon, everyone. Let me start with some important reminders. Comments made during the course of this conference call and webcast and the accompanying documents contain forward-looking statements and are subject to risks and uncertainties. The company's actual results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in its SEC's filings. Aries Capital Corporation assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. During this conference call, the company may discuss certain non-GAAP measures as defined by SEC Regulation G, such as core earnings per share or core EPS. The company believes that core EPS provides useful information to investors regarding financial performance because it is one method the company uses to measure its financial condition and results of operations. A reconciliation of GAAP net income per share, the most directly comparable GAAP financial measure to core EPS, can be found in the accompanying slide presentation for this call. In addition, reconciliation of these measures may also be found in our earnings release filed this morning with the SEC on Form 8 . Certain information discussed on this conference call and the accompanying slide presentation, including information relating to portfolio companies, was derived from third-party sources and has not been independently verified. And accordingly, the company makes no representation or warranties with respect to this information. The company's third quarter ended September 30th, 2025 earnings presentation can be found on the company's website at www.AriesCapitalCorp.com by clicking on the third quarter 2025 earnings presentation link of the homepage of the investor resources section of our webpage. Aries Capital Corporation's earnings release and form 10Q are also available on the company's website I will now turn the call over to Court Schnabel, Aries Capital Corporation's Chief Executive Officer. Court?

Thanks, John, and hello, everyone, and thanks for joining our earnings call today. I'm joined by Jim Miller, our President, Jana Markowitz, our Chief Operating Officer, Scott Lem, our Chief Financial Officer, and other members of the management team who will be available during our Q&A session. I'd like to start by highlighting our third quarter results and we'll follow that with some thoughts on current market conditions and our positioning. This morning we reported strong third quarter results with stable core earnings of 50 cents per share, exceeding our regular quarterly dividend and generating an annualized return on equity of 10%. Gap earnings of 57 cents per share increased almost 10% sequentially and included robust net realized gains from the exit of a previously restructured portfolio company, as well as several equity co-investments. These outcomes led to another quarter of NAV growth, marking the ninth NAV increase in the past 10 quarters and underscoring our position as one of the few BDCs with consistent and growing dividends and cumulative NAV per share growth over the last 10 years. Let me start with our views on the market environment and how we are positioned. New issue transaction volumes are returning to a more normalized pace, driven by greater clarity on tariffs and the direction of short-term interest rates and narrowing bid-ask spreads on buyouts. With this healthier market backdrop, we saw a noticeable acceleration in the volume of transactions under review, both sequentially and compared to the prior year. with more deals reviewed in September than in any month this year. We also received an increase in requests from advisors who are running sale processes and looking for our indicative terms and pricing. Amid a firming market for M&A and ARI's leading presence in U.S. and global direct lending, we reviewed more than $875 billion in estimated transactions over the last 12 months. which was a record for us and supports our view that the market continues to expand. As a reminder, we view our origination scale, which enables us to be highly selective, as a critical driver of our long-term credit performance. The breadth of our origination platform provides the opportunity to pass on transactions when we cannot find acceptable documentation, terms, or pricing. Our scale and sector specialization enhances our market knowledge and underwriting capabilities, while also providing us a real-time view of relative value in the market. These factors contributed to net deployment for ARCC of $1.3 billion in the third quarter, more than double the prior quarter, while remaining highly selective on the transactions we pursued. Our focus on investing in the highest quality credits continues to support strong fundamental credit metrics. The last 12 months organic EBITDA growth for our portfolio companies remains in the low double digits, which is well in excess of market growth rates. Our interest coverage increased further to over two times and weighted average loan to values continue to be in the low 40% range. Our strong credit quality is also evidenced by our declining non-accruals on a quarter-over-quarter basis, along with net realized and unrealized gains and growth in NAV per share for the third quarter. We also take comfort in our portfolio's focus on domestic, service-oriented businesses, which mitigates risks associated with tariffs, shifts in government spending, and other recent policy changes. Our third quarter net realized gains reinforced our long-term track record of generating over $1 billion of net realized gains in excess of realized losses since our inception over two decades ago. Our differentiated results stem from our extensive origination capabilities, allowing for selectivity and strong underwriting, as well as our large and experienced portfolio management team. which focuses not just on minimizing losses, but also on maximizing returns when situations don't go as planned. We also benefit from our deliberate equity co-investment strategy that has generated attractive returns over time. Our third quarter results illustrate the value we provide to our shareholders from realized equity gains. Most notably, we recognized a $262 million realized gain on the sale of Potomac Energy Center, a previously underperforming investment that was on non-accrual in the past and was then restructured and ultimately owned by ARCC. With the restructuring of Potomac's balance sheet, the incremental capital we invested, our proactive management of the company, and patience, we were able to achieve an IRR of approximately 15% on our investment rather than incurring a loss. We also generated net realized gains from the exit of three equity co-investments, generating over $30 million in realized proceeds and representing a 2.5 times multiple on our original invested capital and an average gross IRR in excess of 30%. This supports our track record of generating an average gross IRR on our equity co-investment portfolio that was more than double the S&P 500 total return over the last 10 years. Collectively, our net realized gain performance both this quarter and cumulatively underscores the strength of our investment strategy and deep portfolio management capabilities that drive differentiated results for our investors. As I noted earlier, we believe our portfolio remains healthy and demonstrates solid underlying credit trends. With respect to risks, recently in the headlines, we have no exposure to First Brands or Tricolor, nor do we have any exposure to non-prime consumer finance firms like Tricolor. Following the recent events at First Brands, we've been asked about whether our portfolio companies use receivables financing. and if such financing poses any hidden risks for us. We do not believe there are hidden risks in our portfolio from the small number of portfolio companies that may use receivables financing. Additionally, as part of a normal, ordinary course business practice, our team thoroughly diligences any receivables financing arrangement, along with vetting the broader capital structure of the business during the underwriting process. If such financing remains in place post-close, it is typically subject to strict parameters and is monitored during the life of our investment. These structural safeguards are a core part of our documentation standards and, in our view, represent one of the strengths in our documentation, especially in comparison to the broadly syndicated markets. Like First Brands and Tricolor, another topic that has been in the headlines recently is software and the potential risks posed by AI. Let me make a few comments on how we have carefully constructed our software portfolio over two decades of investing in this sector and why we believe AI is much more of an opportunity than a risk for our software borrowers. As a starting point, Our software loans are financed at what we believe are conservative leverage levels with an average loan-to-value ratio of only 36%, and none of our software loans are currently on non-accrual. Our focus is on financing large, market-leading, and well-capitalized software companies with strong growth prospects. As an example, our software portfolio companies have a weighted average EBITDA of over $350 million, and they continue to demonstrate strong double-digit EBITDA growth over the last 12 months. Our borrowers are generally backed by leading sponsors in the software industry, who not only have substantial capital resources, but are also proactively investing in their platforms to embrace the changes and potential prompted by AI. While we believe AI excels at analyzing data and generating high quality content, it typically does not provide the foundational infrastructure required for critical business operations or systems of record. These functions still rely heavily on traditional software systems that can securely store data and facilitate complex transactions. We have therefore historically focused almost entirely on financing software companies that operate B2B platforms and typically serve highly regulated industries, leverage proprietary data, or deliver repeatable, consistent results core to business operations. Importantly, these companies are deeply embedded within customer operations and also benefit from high switching costs given the risk of business disruption from moving to alternative vendors, which in our view provides additional layers of durability and resilience against potential AI disruption. While we believe AI poses minimal risk to our software loans, advancements in AI remain an important component to future value creation for these businesses. For example, insights generated by AI can enhance these foundational systems by improving analytics, user experience, and operational efficiencies while serving as a valuable complement and not typically a replacement for mission-critical software. Importantly, these views reflect ARIE's ongoing collaboration among our highly experienced software investment team, our in-house software analysts, and ARIES in-house AI experts at Bootstrap Labs, a leading AI-focused venture capital investment team that joined the ARIES platform a few years ago. We leverage our entire platform to drive credit decisions on each software transaction we consider, as well as in our quarterly valuation and risk assessment processes led by our portfolio management team. Now, before turning the call over to Scott, let me address our outlook on our future earnings potential and dividend levels in light of market expectations for further declines in short-term interest rates. We believe there are distinct competitive and financial factors that position ARCC to maintain its current dividend level for the foreseeable future, despite the potential headwinds to earnings posed by lower short-term interest rates. As a starting point in the third quarter of 2025, our core earnings continued to exceed our dividend. Second, during the last period of rising short-term interest rates in 2022 to 23, we intentionally set our dividend at a level equivalent to a 9% to 10% ROE, which is a level we have historically achieved through different interest rate cycles over the last 20 years. We set the dividend at this level because we believe we can sustain this level of profitability through market cycles. The third point worth highlighting on this topic is what we view as our unique financial position with multiple levers to expand earnings or offset headwinds solely from falling market rates. Notably, our balance sheet leverage remains around one times, which is well below the upper end of our target range of 1.25 times. giving us ample flexibility to drive higher earnings by supporting prudent growth using our efficient sources of capital. We also believe there is growth potential to capitalize on higher yielding opportunities within our 30% non-qualifying asset basket, including through strategic investments like Ivy Hill and SDLP. Additionally, given the prospects for a more active environment alongside our origination scale, we believe there is potential for increased velocity of capital, which could drive additional capital structuring fees to further support our earnings. Lastly, the historical strength of our earnings and credit performance has provided us with $1.26 per share in spillover income, which is equivalent to more than two quarters of our current dividends. We believe this level of spillover income gives further visibility to our investors since it provides a cushion to support our quarterly dividends in the event of temporary shortfalls in our quarterly earnings. In summary, we had a strong quarter with healthy credit performance and financial results that demonstrate our enduring competitive advantages. And with that, I'll turn the call over to Scott to walk us through our financial results and the continued progress we're making on our strong balance sheet.